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Q: Our company has a contract with an overseas distributor that has recently been sanctioned over a corruption issue with another company's products that they also distribute. We are wary of doing business with them now, although we have no reason to believe that there is anything improper about the way they are selling our products. With a large outstanding order that is material to our worldwide sales results, we don't want to dump them altogether. What can we do?

A: This is a tricky situation. You need the order to go through, or your financials will suffer. At the same time, you don’t want to be tainted, or to appear so. This could hurt your ability to compete in the country where this distributor was sanctioned, and in other countries, like the US, that have strict foreign anti-bribery laws. At a minimum, the situation could create compliance headaches for your company.

If your contract with this distributor is important to your company’s results, you can’t disregard the impact of dropping it as a business partner. You have an ethical obligation to consider your company’s interests; you owe that to your shareholders. “Financial gain is not something that can be quickly dismissed, especially since it plays an important part in a company's financial health and, ultimately, its survival,” says Steve Nguyen, a workplace psychologist and executive trainer.

If you knew that there was malfeasance (say, if the distributor has been paying kickbacks to place your products in stores or paying bribes to gain entry for your goods into another country) going on with your products, you would have an obligation to root it out, even if that meant cutting ties with your distributor. That’s not the case here. This is a question of appearances. You don’t think your distributor did anything wrong with your products, but you’re worried about guilt by association.

One issue is “the possible – but very real – damage to your own company's reputation” when your customers and competitors find out that your distributor is in trouble for corruption-related dealings, Nguyen said: “Just being associated with this particular overseas distributor might cause your company to also look guilty, even if there is absolutely no evidence to support this.”

As an example for how to handle a similar dilemma, Nguyen cites Apple Inc, which elected to drop one of its suppliers when it came to light that the supplier had (illegally) used underage workers. The tech giant also publicised its supplier responsibility code, using the incident to draw attention to its existing compliance and accountability policies, Nguyen said.

Consider this a chance to be an ethical leader, to “promote and model ethical behaviour in the workplace and the organisation,” Nguyen said. Think about how your stakeholders would react if they knew you were doing business with a known corrupt organisation. Now think about how they would take the news that you had fired this distributor. Which reaction sounds more like the company you want to run?

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